Social Context of the Law: Is the Rise in Mass Litigation Distorting Our Legal System and the UK Economy?

Sir Geoffrey Nice: The Social Context of the Law series was established to ensure that contemporary and sometimes controversial issues can be discussed between leading experts of this country, possibly of the world. This evening the panel will be introduced by our chair, Estelle Dehon KC. She is environmental law focused in a way that will be of great importance for cases to come, and for the benefit of the world as a whole.

Estelle Dehon KC: We couldn’t have asked for two better-informed speakers to talk about mass litigation and the legal system in this country and any implications for the UK economy. First, we have Fredrik Erixon, who is a distinguished Swedish economist and co-founder of the Brussels-based think tank, the European Centre for International Political Economy (ECIPE). He has authored a number of papers on the rise of mass litigation in Europe; he has advised heads of government in two different countries, and worked with the World Bank based in Nairobi.

We then have Martyn Day, who is senior partner of Leigh Day and co-founder of the firm; he specialises in international environment and product liability claims, often brought as group actions. He needs no introduction to a legal group, having been the head of a team of over 20 lawyers for a long time, representing claimants in high-profile, long-running controversial cases, both in this country and abroad, always with the reputation of fighting for the underdog.

Martyn Day: Leigh Day was founded in 1987, and a few years later, we managed to get Legal Aid for a big group case. It was a massive case to do with childhood leukaemia around the Sellafield nuclear plant. We didn’t win, but the trial lasted for a year, it was massively interesting, and I realised it really was where my professional life was going to be.

As a result of doing that sort of case, Lord Woolf, back in the 1990s, asked me to be on his committee, and I was part therefore of setting up the group litigation order system. That is the main way of bringing a group claim within the High Court. There have been 125 over the last 25 years – an average of five per year. In the United States they have over a thousand class actions every year.

What’s interesting is that in the early days when the system first got into place, Legal Aid was pretty much withdrawn. By the late 2000s, there were almost no Legal Aid cases that you could bring under the group claim system. That carried on until about seven years ago when suddenly funders started to bring money into the system.

Now these are funding outfits that started by helping to fund individual actions in relation to the commercial sector. They did pretty well out of it, and as a result they thought that it would be good to diversify into mass claims. The difficulty is that for a funding case to work you have to have a claim that’s worth around £100 million. In most cases the way they make their money is that if they do the deal with the claimants, they get around 30 per cent. If you’ve got a claim of £100 million, then they will rake in about £30 million; the cost will be around £10 to £15 million.

The funding world has meant two or three things. The first is there are hardly any firms out there to represent ordinary individuals in group claims that were formed after about 1990. And since the new funders have come into operation, we’ve seen a plethora of them. The good thing is that it means that there’s much more choice for consumers to be able to bring claims. The other side of what’s been going on is the Competition Appeal Tribunal (CAT), where opt out is used. Group claims are opt in when individual clients have to be signed up with their details on the claim form.

Opt out is like a class action in the United States. So, you get somebody who leads the class, but they represent the class as a whole. In a famous case called Walter Merricks, who took on Mastercard over their interest rates, the case was basically on behalf of all Mastercard users from a particular period. So, 99.9 per cent of people would never know that they were part of this group who are bringing the action. The advantage for the funders is that these claims can be worth hundreds of millions and even billions.

In the last five or six years there have been something like 50 cases that have started in the CAT, largely driven by funding. One of the issues of the CAT is that it’s very front-loaded. To become certified to be a class, the court has got to approve it. Often the costs of getting to that stage may be £3, £4, £5 million. So, there are very few firms who could afford to do that without funding. In the Mastercard case, Walter Merrick thought it was worth a few billion, they ended up doing a deal for $200 million. The costs that the funder had paid in were $45 million by the time that deal was struck.

In the Post Office case – involving hundreds and hundreds of postmasters and mistresses who had been found responsible for a Post Office system that actually was not worth its weight – they managed to do a deal for £57 million with the Post Office in terms of a few hundred of the Post Office postmasters and mistresses and the funder took something like all but £11 million of that money.

To conclude, the opt out system has changed the system quite dramatically. But in terms of the High Court, it still ambles along at around five a year. So, even though the funding in this system is improving access to justice, there is still quite a long way to go before we ever hit that thousand per year in the States.

The opt out system has changed the system quite dramatically. But in terms of the High Court, it still ambles along at around five a year.

Fredrik Erixon: Martin has done the very important task of explaining what’s been going on in recent years. There has been a remarkable rise in cases over the last eight years. Depending on how you cut the figures, if you compare the last four years with the previous four years, there’s been an increase of 400 per cent in the number of cases that have been filed. Almost 50 per cent of all cases now are competition cases, and they appear before the CAT. The other cases which have the highest growth rates will be securities cases and GDPR cases.

The opt out system is one of the biggest factors if you want to understand this growth, especially if you compare the UK with the rest of Europe, where opt out systems are not in use, the other factor being the availability of funding. Law firm CMS provides an annual report on collective litigation in the UK and they reported around 655 million class members in the UK by the end of 2024, and the total sum in these claims added up to around £135 billion.

I cut my teeth in competition and litigation funding for a consultancy called National Economic Research Associates in the United States. One thing which strikes me when you compare now with back then is that liability insurance costs have skyrocketed. This is one of the obvious economic aggregates you can look at to understand some of the economic consequences. We find that the claim sizes also have impacted significantly companies in how much money they need to hold onto in the balance sheets when a claim is being made against them.

There are lots of other different consequences as well. But my point is, and which brings me to my concern, that when you have a system which is moving so fast in this direction, you are likely going to have an economic impact from these type of cases which affects the capacity in the economy to innovate.

Lastly, given that the UK has now become such an outlier in Europe when it comes to collective litigation, what can be done? The Civil Justice Council reported just before the summer a very good proposal. They are not proposing direct regulation. They are proposing a couple of disciplines in this system in order to avoid undesirable consequences. They are proposing different type of transparency rules when it comes to location and who the investors are because of developments that we see where you have litigation funders who get money from competitors to companies that start to sue other companies in order to achieve competitive gains. There was such a case recently in which AstraZeneca had to settle in America for about $50 million because of claims that were made by pharmaceutical buyers, but behind that were also companies that were competing with AstraZeneca.

They are proposing that anti-money-laundering rules should be applied. That is directly connected to a British company who was found to be in violation of the law and also had to pay out to a class. But once the bill was supposed to be paid, they weren’t really sure if they could do it, because it was unclear who the company was, because they were located in a place where anti-money-laundering rules were difficult to apply.

The Civil Justice Council also are right in pointing to alternative dispute resolution mechanisms, and that there are lots of things that can be done in order to avoid litigation which is very costly for everyone. This is a system which I favour, partly because of my own experience of it coming from Sweden where we have a strong system for alternative dispute resolution mechanisms which in the end tend to lead to better payouts to consumers and others that have been wronged, at a much lower cost than going to court to litigate all these issues.

Estelle Dehon KC: I shall add three matters of context to this discussion. First, this year, we had the UK Civil Justice Council publish its long-awaited report on the regulation and future of litigation funding. The report makes 58 recommendations; a super-interesting, light-touch, statutory regime of regulation suggested to replace the current self-regulatory approach. Not looking for a cap on funding returns but looking for a court maybe to approve that the returns are fair, just and reasonable, and early disclosure by the funded litigants of the existence of the funding, the funders’ identity and the ultimate source of the funds.

Second, this year the Office for Budget Responsibility warned that the UK’s national debt is on course to double to 270 per cent of GDP by 2070, and that climate-related risks are the major driver of that. Modelling concerning the damage to UK GDP from climate change, showed it would be more severe than previously thought. So, climate-related risks have a very serious potential economic impact.

Finally, and most recently, the High Court ruled in the case which is probably the biggest of Brazil’s environmental disasters being litigated in the UK in relation to the BHP group. The High Court found in its first-stage judgement that BHP is liable under Brazilian environmental law for the collapse of the Fundäo Dam. That collapse occurred in 2015 and resulted in the release of about 40 million cubic metres of tailings from iron-ore mining. A village was destroyed, 19 people were killed, the tailings polluted the river system along its entire course to the sea. The court held that BHP was liable and, although it wasn’t the direct legal owner of the dam: it was directly or indirectly responsible for the polluting activity: this was a case and a piece of litigation not capable of being brought without litigation funding.

Estelle Dehon KC OBE
Cornerstone Barristers

Martyn Day
Leigh Day

Fredrik Erixon
European Centre for International Political Economy

For the full video recording:
innertemple.org.uk/masslitigation